Friday 13/12/24

ECB lowers rates to 3% and paves way for more cuts (Financial Times, Olaf Storbeck and Ian Smith) shows that the ECB decided yesterday to cut interest rates by the 0.25 percentage point widely predicted to 3% whilst saying that GDP growth for the bloc would be weaker than it had previously thought. This is its fourth interest rate cut since June and brings it back to a level not seen since March 2023. Some members of the ECB had voted for a 0.5 percentage point cut but I guess that the less racy course of action it decided to take in the end had in mind the weak growth of the Eurozone and Germany as well as a potential global trade war sparked by Trump’s tariffs. Pound touches post-Brexit high against euro after ECB rate cut (The Times, Mehreen Khan) highlighted the immediate reaction which powered sterling to its highest level since the aftermath of the Brexit referendum in 2016.

Meanwhile, Pedro Sánchez gears up for Spanish budget battle as political tensions mount (Financial Times, Barney Jopson) shows that the Spanish PM is now facing the challenge of passing a Spanish budget in Q1 next year against the backdrop of corruption allegations of his inner circle, including his wife and brother. This budget is particularly important as it could unleash funds that would help Valencia recover from the massive floods it had in October and

increase defence spending, which is currently way behind the NATO target of 2% of GDP. * SO WHAT? * Pedro Sánchez has had a tricky time in office and his minority government has a difficult time reaching a majority in parliament as various factions, such as the Catalan separatists, continue to pursue their own agenda. It’s back to normal then after the recent good news about its GDP growth.

Then in Fallout from breakdown of UK labour force survey spreads (Financial Times, Delphine Strauss) we see that the ONS’s staggering incompetence has not just been limited to its dodgy employment statistics bemoaned by the Bank of England as the Office for Statistics Regulation, which is the regulatory division of the UK Statistics Authority, has now found that its figures on smoking habits, personal wellbeing, the composition of the UK population by country of birth and nationality as well as those on labour markets and households’ disposable income are all rubbish. All of this makes it much harder for the government (and Bank of England) to make the right decisions and the right time. What an absolute shambles. No doubt when things go wrong, dodgy data will be a useful excuse…

US media groups warn UK over AI content-scraping rules (Financial Times, Daniel Thomas) shows that the Copyright Alliance – a US cross-media industry body that represents the likes of Fox, Disney and Universal Music – has sent a three-page letter to UK ministers this week to emphasise its “strong opposition to the introduction of AI exceptions” to copyright rules just days ahead of the government’s launch of a consultation into AI and creative industries. The concern here is that the government might go soft in its bid to encourage the development of AI by allowing algorithms to scrape content from publishers and artists unless they “opt out”. On a broader note, UK’s ambitions to police AI face Trump’s ‘starkly’ different approach (Financial Times, Cristina Criddle and Anna Gross) refers to a gap between the UK’s ambition of taking a key role in overseeing AI globally and the incoming Trump administration’s concern for the over-regulation of AI start-ups. Trump has promised to cancel Biden’s executive order on AI, which led to the creation of a US AI Safety Institute. There are concerns that the UK’s AI Safety Institute (AISI) will lose its teeth if Trump’s administration pursues a more protectionist attitude towards its tech sector. * SO WHAT? * This delicate balancing act between allowing AI to grow and protecting intellectual property will not go away and it certainly feels like the Americans in particular are going to take a more lax approach to AI development because it’s pretty much their companies who are at the forefront of its development.

On the tech hardware side of things, Broadcom Revenue Surges on Semiconductor Business Momentum (Wall Street Journal, Sabela Ojea) heralds a revenue hike in Q4 thanks in the main part to the strong performance of its semiconductor business while Google plans new smart glasses and VR headsets in Samsung partnership (Financial Times, Tim Bradshaw) shows that the company hasn’t given up on the idea of smart glasses and has decided to team up with Samsung to take on Meta and Apple in the pursuit of must-have smart glasses and VR headsets. The collab is codenamed “Project Moohan”. * SO WHAT? * Clearly there is a market for smart glasses that look normal/quite nice (as opposed to those that are big and expensive – like Apple’s Vision Pro!), something that Meta’s Ray-Ban-branded smart glasses have amply proved! Google was perhaps ahead of its time with Google Glass. Interestingly, Project Moohan is working on a VR headset with similar high-fidelity displays and user experience as the Vision Pro but for way less than the $3,500 cost of Apple’s headset.

In media news, HBO parent Warner Bros to split TV and streaming into two units (Financial Times, Zehra Munir, Maria Heeter and Anna Nicolaou) highlights Warner Bros Discovery’s intentions to split its TV business and streaming and studios business into two separate units,

which many are interpreting as a precursor to an out-and-out break-up. The announcement of the group’s restructuring plans was made yesterday and was a hit with investors as the share price saw a hefty 16% bump to hit its highest level since late 2023. That being said, it is still 50% short of where it was in 2022 when it was formed by the merger of Warner Media and Discovery. * SO WHAT? * It really seems to me that companies are increasingly looking to streamline their businesses and ditch their conglomerate discounts (basically a hit on the valuation of a company that is deemed to have too many fingers in too many pies). This move reminds me of a similar move recently where Comcast is looking to spin off its cable TV networks. Trad TV seems to be on a bit of a downer currently and therefore drags on a company’s performance. It may be challenging to find a buyer, but everything has a price – it’s just what the owners are willing to accept! It’s also interesting to see such spin-offs and demergers because it seems that these things go in cycles. When companies race to buy up other businesses the rationale is that a bigger group with a more diversified portfolio of assets can reduce earnings volatility (because if one business is doing badly, for instance, another division can mitigate that by outperformance). However, investors sometimes find that such enlarged companies are too broad-based and are therefore more difficult to invest in (because more investors like to be able to buy into themes that are easy to see). When more investors start to think the latter, you then get conglomerates reviewing their businesses and ditching areas that aren’t core (e.g. Unilever with its ice-cream business – although they’ve not had much success with that so far!). Usually, when they do this, they keep a share in what they’ve sold to take a slice of any subsequent upside. This seems to be where we’re at in the cycle at the moment…

Then in YouTube Raises Price on TV Streaming Service to $82.99 (Wall Street Journal, Joseph De Avila) we see that YouTube has said that it will increase the monthly cost of its TV streaming service to $82.99 per month from $72.99 starting in January next year. It said that this was due to the rising cost of content. * SO WHAT? * At the end of the day, I think that such price rises are bound to happen given the cost of making content that people actually want to watch. It seems that we’ve evolved from having a ton of content bundled up together – some of which is a bit ropey and cheap while the other bits are expensive and what people actually want to watch – to different platforms with their own content. I would imagine that this has led to a lot more people platform-hopping when they binge on one, cancel and then move onto another to minimise spend. The problem with that, though, is whether it’s bad for the business model or not? I guess that with the added revenue streams these days of advertising it strikes a reasonable balance.

Costco Earnings Rise in First Quarter Following Fee Increase (Wall Street Journal, Katherine Hamilton) highlights higher sales in the latest quarter but it also noticed a weird phenomenon where they they did well from customers loading up on goods at both the highest and lowest price points! An example of this was in meat where it saw the biggest increase in sales for more expensive cuts as well as the cheaper ones. Costco did quite well while the retail sector as a whole is showing mixed performances at the moment. Maybe it’s because it’s able to attract the thriftier shopper as well as the more affluent ones…

I thought I’d mention The Cookie Chain Teen Girls Are Powering to $1 Billion in Sales (Wall Street Journal, Julie Jargon) because Crumbl Cookies is taking social media by storm in the US (where it has 1,000 franchise-owned Crumbl cookie shops) and Canada (where it has 18 currently). The company seems to be able to tap into girl pop culture and is part of what the article describes as a “trifecta of internet-fuelled teen obsessions” that also include Starbucks drinks and Sephora skincare products! I wonder whether they’ll make it over to this side of the Pond!

Back in the UK, Consumer confidence recovering from budget blues (The Times, Jack Barnett) cites the latest research by GfK which shows that consumer confidence continues to recover from pre-Budget nervousness as they have become increasingly optimistic about their finances over the coming year but then Currys says price rises ‘inevitable’ as it faces £32m profits hit from budget (The Guardian, PA Media) highlights decent sales but higher costs at the electricals retailer. * SO WHAT? * If consumer confidence is recovering and wages are still going up (albeit

at a slower rate) you would have thought that there is scope for Currys to raise its prices, as per the warning. I guess this is quite a useful thing to say before Christmas because maybe it will prompt shoppers to buy before price rises are made!

Meanwhile, UK financial watchdog delays Shein listing amid supply chain scrutiny (The Guardian, Reuters) shows that the FCA is dragging its feet a bit on Shein as it is checking supply chain issues and assessing legal risks – which is interesting given that they recently made positive noises about a Q1 IPO. Shein is also waiting approval from the Chinese securities regulator for a London IPO, although that is expected to come after the FCA’s decision. * SO WHAT? * Put bluntly, I think that Shein is dodgy as and just willingly rips off other companies’ designs – as evidenced by the mountains of legal complaints by apparel retailers and designers around the work. However, the LSE badly needs a big IPO as companies continue to leave and I would have thought huge efforts will be made to get this flotation away. The problem is that those legal risks will still be there so I think that anyone who buys into this IPO should do so whilst being wary of stepping on a landmine.

I thought that TikTok’s annual carbon footprint is likely bigger than Greece’s, study finds (The Guardian, Isabel O’Brien) was pretty interesting because it mentions research from Greenly, which shows that the social media platform’s annual carbon footprint is probably bigger than that of Greece 😱! This is thanks to users spending so much time on it. Not sure how this works but it is quite interesting, no??

In a quick scoot around some of today’s other interesting stories, China’s Trump cards in the coming trade war escalation (Financial Times, Stephen Roach) is an interesting take on what may lie in store for Trump when China decides to retaliate against sanctions taken out against them. China needs the US just as much as the US needs China but Trump believes that bilateral sanctions slapped on a major trading partner will solve China’s trade deficit with the US. It is worth noting that the trade that would have gone to China just got diverted to other countries when Trump imposed sanctions in his first term, so trade diversion had the equivalent effect of a tax increase on US companies and customers. It is likely that this will continue in Trump’s second term and as US sanctions increase, so will China’s. If China broadens its restrictions on critical mineral exports, things could get very painful for the US. But there’s more that the Chinese could do – weaponise its $1bn holding of US Treasury securities, for instance. It could do this by going on a buyer’s strike during the next Treasury auctions or it could even start to unload its holdings, which could have a huge effect on the US bond market that would have global repercussions. China has plenty of levers to pull should it feel the need…

Then in Ministers consider weakening rights of communities to block clean-power projects (Financial Times, Rachel Millard and Jim Pickard) we see that the government is thinking about

hobbling communities’ rights to object to new pylons or wind farms in their neighbourhoods in the race to decarbonise. Its plans for clean power will need a massive buildout of new wind farms and solar farms in addition to the cables and pylons needed to transport that power elsewhere. * SO WHAT? * The worry is that locals could dig their heels in and delay processes by dragging issues through the courts – so Ed Miliband is hoping to put a stop to that by limiting their options. This is not going to be popular and will definitely test the resolve (and probably popularity) of the government.

Meanwhile, HSBC reviews retail banking outside UK and Hong Kong (Financial Times, Ortenca Aliaj and Kaye Wiggins) shows that the bank is conducting a review of its retail banking operations outside the UK and Hong Kong in a bid to cut costs and will look to streamline and concentrate on wealthier “premier” clients. Mexico looks like it could be in for the chop but I guess this will be an ongoing process…

In this classic bit of stand-up, Welsh genius Rhod Gilbert tells you why you might want to reconsider giving someone an electric toothbrush as a Christmas gift 🤣. If you like this, you should hear what he has to say about the difficulties he encountered buying a single baked potato in a supermarket and the power of shower gels.